FinTech Industry & Regulation – Page 27 – FinTech and Blockchain Law Watch

Bank of England Governor delivers wide-ranging FinTech speech

Jan 26 2017

Mark Carney, the Governor of the Bank of England, has given a wide-ranging speech on FinTech which he delivered at the Deutsche Bundesbank G20 conference on 25 January 2017. It was entitled “The Promise of FinTech – Something New Under the Sun?”. Whilst recognising that FinTech’s true promise springs from its potential to unbundle banking into its core function, systemic risks will evolve. The challenge for policymakers is to ensure that FinTech develops in a way that maximises the opportunities and minimises the risks for society. Read More

Top Five Legal Trends for FinTech in 2017

Jan 25 2017

Judith Rinearson and Robert Zinn contributed an article to AmericanLawyer.com on legal trends to watch for in 2017 concerning FinTech. Trends include:

Major political change
Investments and M&A
Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF)
Blockchain & distributed ledgers
Cybercrime and data security

To read the article, click here.

Accenture runs its largest ever fintech accelerator programme in shadow of Brexit

Jan 20 2017

By Cameron Abbott and Allison Wallace

After fielding more than 300 applicants around the globe, Accenture has selected 20 start-ups to participate in its largest ever fintech accelerator programme.

Artificial Intelligence, Blockchain and gamification technology are all key features in this year’s 12-week programme running in London.

By the end of the programme, 8 start-ups will be selected to present at the programme’s Graduation Day to a group of venture capitalists and financial industry executives. All of the start-ups will receive mentorship from representatives of 28 financial institutions.

Accenture’s Tom Graham told Finextra “the transformation requirements that the financial services industry must undertake to remain relevant arguably pose a bigger challenge than the immediate geo-political uncertainty casting a shadow over the industry”.

Dubai International Financial Centre launches region’s first FinTech accelerator

Jan 17 2017

By Jonathan Lawrence

Dubai International Financial Centre (DIFC), the federal financial free zone situated in Dubai, United Arab Emirates, announced on 10 January 2017 the launch of the region’s first FinTech accelerator.

The FinTech Hive at DIFC accelerator aims to create a platform that will provide selected companies the opportunity to test and modify their FinTech advances. It will identify leading technology entrepreneurs and companies through a competitive process and offer them the opportunity to collaborate with executives from DIFC and regional and international financial institutions. Accenture has been chosen to set up and operate the accelerator

About 150–200 companies are expected to take part in the FinTech Hive over a five-year period, and no specific funding amount has been provided. The FinTech Hive is also interested in growing companies that have a product currently deployed outside of financial services but that are interested in entering this sector.

For the FinTech Hive at DIFC website, please click here.

The Future of Active Funds Part 2: Don’t Just Be an Active Fund …Be a Pro-Active Fund

Jan 17 2017

By Tyler Kirk

2017 will likely be the year of blockchain, and active fund shops should take notice. With over a quarter trillion dollars fleeing actively managed funds, see Part 1, 2016 was a disappointing year for active managers in the U.S. Blockchain’s cost savings might just be what the doctor ordered.

For 7 years the world struggled to understand bitcoin. Bitcoin was introduced around November 2008, declared property by the IRS in March 2014, and declared a commodity by the CFTC in September 2015. With bitcoin no longer novel, 2016 became the gestation period for bitcoin’s more profound invention, blockchain. As 2017 picks up momentum, we will begin to see financial institutions bringing blockchain applications in from the fringes of the industry and revolutionizing the financial markets. Consider the race by banks to patent their blockchain ideas. It doesn’t look like it will take 7 years for blockchain’s potential to become reality.

Indonesia’s financial services authority issues its first FinTech regulations

Jan 12 2017

By Jonathan Lawrence

Indonesia’s financial services authority (OJK) has issued its first regulations relating to FinTech. The regulations lay out minimum capital requirements, interest rate provision and education and consumer protection rules.

Every Indonesian FinTech P2P lending firm must now register and secure a business licence from the authority. A company must have Indonesian Rupiah 1 billion ($75,000) in capital to register, and a further Indonesian Rupiah 2.5 billion ($188,000) to apply for a business licence. These figures are approximately half those that had been proposed in previously issued draft regulations. Foreign ownership is limited to 85%.

No maximum interest rate has been set, which again contradicts previous drafts of the regulations which set a cap of seven times Bank Indonesia’s seven-day reverse purchase rate per annum.

Muliaman Hadad, chair of OJK, told the Jakarta Post that the regulation was only an initial step in the authorities’ efforts to regulate and supervise the business. “What’s important is they get onto our radar because we don’t want to regulate the prudential aspects hastily. We want to provide [business] transparency guidelines first,” Hadad said. The OJK also has implemented a regulatory sandbox for firms to test services for consumers.

Bank Indonesia set up a dedicated office and regulatory sandbox in November 2016 to help FinTech developers. It will also provide services to help developers to understand Indonesia’s regulatory policies on FinTech, gather and disseminate information on developments, and hold regular meetings with authorities and international bodies interested in the use of technology in finance, Bank Indonesia said.

For a full text (in Indonesian) of the regulations, please click here.

Building Smart Contracts Trust in 2017-The Lawyer’s Role

Jan 09 2017

By Susan P. Altman

In 2016 we saw a flurry of discussion, a lot of interest, and a little bit of actual experimentation with smart contracts, the computer programs that automatically execute the terms of a contract on a blockchain. What do we need to firmly launch smart contracts into the mainstream and what is the lawyer’s role? A recent article in Coindesk by executives at Tezos argues that we need to conquer three remaining barriers: 1) implementation of formal verification of the smart contract code—a mathematical technique of verifying the integrity of software code; 2) enablement of transparency of the smart contract code by using interpreted code rather than compiled code (a concept meaningful to developers that permits them to more easily inspect code on the blockchain); and 3) development of clear governance mechanisms for the smart contract.

The first two barriers must be solved by software developers. It’s the last item—development of clear governance mechanisms—that will require joining the lawyer’s legal skills with the software developer’s coding skill. Software on the blockchain is immutable, but there has to be a mechanism for correction of the inevitable software error. Here is where the lawyer will tailor the governance processes learned so well in significant outsourcing transactions: governance and committee structure, issue escalation procedures, and change request process. Smart contracts are intended to be part of real contracts, and we lawyers already know the building blocks of well-crafted contracts. Here’s to 2017!

The Future of Active Funds Part 1: Will Blockchain Save Actively Managed Mutual Funds?

Jan 06 2017

By Tyler Kirk

With the rise of passive products in the mutual fund industry, active managers have suffered staggering outflows. On July 9, 2016, Barron’s published an article titled, The Future of Mutual Funds, addressing what Morningstar calls, “Flowmegeddon.” According to Barron’s, investors withdrew US$308B from actively managed mutual funds and invested US$375B into low-cost passive mutual funds and ETFs for the 12 month period ending in May 2016. Focusing on active shops during that same period, the median outflow of the 10 best performers was US$598M and the same for the bottom 10 shops was US$3.8B. Thus, performance alone will not save actively managed funds, costs need to be cut.

On December 13, 2016, the Wall Street Journal reported that 60 mutual fund executives met inside OppenheimerFunds’ Manhattan office to discuss outflows from active shops. Named the “Seismic Shift Senior Leadership Forum, one of the proposed solutions was to reduce fees. Could blockchain be the answer?

In an October 21, 2016 article, Ignites Europe reported that service provider International Financial Data Services (“IFDS”) had carried out a test where mutual fund shares were bought using its mobile application. The transaction was processed, recorded on the blockchain, and added to IFDS’s registry. According to IFDS, mutual funds could cut costs by as much as $100M by distributing shares directly to investors through the blockchain. IFDS could bring its blockchain to market as soon as 2017.

Additionally, blockchain can be used for back-office processes as well as the recording of transactions for compliance and regulatory purposes. Combining blockchain with smart contracts may introduce efficiencies in the sec-lending and repo markets for funds.

Yet, there are regulatory and operational risks. How would funds meet recordkeeping and custody rules? Would no-action or exemptive order relief be required from regulators? Further, cybersecurity and protecting PII will have to be paramount. Nevertheless, in spite of the risks, active shops that implement blockchain operations correctly are likely to see significant first-mover advantages, and they just might discover the right combination of performance and cost savings.

Retailer invests in FinTech

Jan 05 2017

By Jonathan Lawrence

UK department store company House of Fraser is to invest £35m in Tandem, an app-only challenger bank. The move will enable House of Fraser to offer online banking services to shoppers.

Tandem was founded in 2014 and received its UK banking licence a year ago. It has already raised over $30m from investors, including eBay co-founder Pierre Omidyar. Founded in 2014, Tandem raised £1m last year in a crowdfunding campaign, valuing it at £65m.

Tandem competes with other new app-only start-up banks, dubbed “neobanks”, including Monzo, Starling and Atom. It currently offers a savings tool that lets people monitor spending on any bank account. It began rolling out its app in November 2016 and plans to launch credit and debit products in 2017.

House of Fraser was acquired by Chinese conglomerate Sanpower in a £480m deal in 2014. While the company already offers credit and loyalty cards through NewDay, the ability to offer app-only online banking services is a departure that could see other UK retail multiples follow suit.

UK FCA to publish consultation paper on new rules for investment and loan-based crowdfunding platforms

Jan 05 2017

By Tom R. Wallace

In December 2016 the UK FCA published a statement of its intention to publish a Consultation Paper in Q1 2017 proposing new rules for investment and loan-based crowdfunding platforms.

Based on information the FCA has gathered through a consultation ending in September 2016 and its supervision and authorisation of crowdfunding platforms, the FCA’s view is that aspects of the crowdfunding market currently pose some risks to its objectives. The FCA perceives risk of regulatory arbitrage in the loan-based sector, and potential for investors to misunderstand the nature of the products offered. While respondents to the FCA’s request for feedback rightly note that many of these risks existed when the FCA established the current crowdfunding regulatory framework in 2014, the FCA counters that the market has grown in significance and complexity since then.

While investment-based crowdfunding is facilitated entirely by fully-authorised firms, most loan-based crowdfunding firms, including the largest ones, have so far operated under interim permissions. The FCA notes that, while it has identified some issues about the investment-based crowdfunding market, most of its attention at this time is on issues in relation to loan-based crowdfunding.

Taken together with its other statements on the crowdfunding sector, the FCA is giving an indication of its perspective on the issues associated with the #crowdfunding market and, pending publication of consultations on the new rules, incumbents and innovators should take care to create legal, operational and compliance structures that are likely to align with the FCA’s direction of travel in this market.

The FCA frame this as an evolution of the existing regulatory framework, not a revolution, and I find the FCA’s depth of the knowledge about, objectives for and focus on the market to be a source of optimism for the future of the crowdfunding market in the UK for investors, incumbents and innovators.

Category:FinTech Industry & Regulation